US mobile operators race for first with 5G as fixed alternative

Friday 2 March 2018 | 12:20 CET | Market Commentary
The latest edition of Mobile World Congress shows that 5G is well on the way to becoming a reality, with the first services expected before year-end. While it appears the US operators are taking the lead in launching 5G, the reason may have more to do with fixed networks in the US than a need for better mobile services. Wireline operators like Frontier and Windstream are struggling to stay afloat, as a majority of people in the US have already gone mobile-only. AT&T and Verizon are hoping 5G will help them re-invent the home broadband market.

All four of the US operators have confirmed that 5G network roll-outs are already underway. The first services will come from market leaders Verizon and AT&T before the end of 2018, but these will not be over phones – instead they are planning to start with providing fixed-wireless broadband over the new technology. A surprising move at first glance, given that AT&T and Verizon appeared to have given up on the fixed market, divesting many of their assets in recent years. However, the increasingly competitive mobile market has meant both are looking for new sources of growth. In addition to their adventures in the TV and online video markets, they are hoping 5G will allow them to recapture some of the home broadband market.

Majority mobile-only

The rise of smartphones over the past decade has driven many Americans to abandon their home phone. According to data from the US department of health, 50.5 percent of adults and 60.7 percent of children lived in homes with only mobile phone service at the end of 2016.

The move to mobile-only, driven by younger generations, has been a disaster for the remaining wireline-only operators in the US. Companies such as Windstream, Frontier and Consolidated Communications, which were built in part from acquiring Verizon’s former fixed assets, have seen their cash flow crumble as they steadily lose customers, making it difficult to service their debt or invest in new services. They have become reliant on government subsidies to invest in broadband networks and on other providers like AT&T’s DirecTV to deliver video services. The situation is unlikely to improve, as the FCC is withdrawing many of the requirements to maintain wireline services.

No choice for fixed broadband

This has left the home broadband market largely to the cable operators, which have consolidated into a handful of large players in recent years but still do not have national coverage. According to FCC data, three-quarters of areas in the US have a choice of no more than two fixed broadband providers that can deliver the regulator’s recommended minimum speed of 25 Mbps (30% with two providers, 30% with one, 13% with none). While the latest data is only for the end of 2016, it shows 44 percent of census blocks in the country had no providers of broadband at 100 Mbps or higher, and 41 percent had just one such provider.

This data above suggests there is a big market to be conquered among Americans tired of paying the high fees for cable and hungry for faster speeds. The improved latency, capacity and dense coverage expected from 5G, not to mention gigabit speeds, means it presents the first viable opportunity to deliver residential broadband on a mass-scale over wireless networks, without the usual data caps. US mobile operators will be able to build on their existing wireless networks to deliver the services nationwide, without the high costs of construction for FTTH or copper networks.

Not only do the US mobile operators want to deliver wireless broadband, they are also getting ready to push their video services over the new networks, with AT&T testing DirecTV delivery and T-Mobile preparing to enter the TV market with an OTT service on its mobile network. Even with lower prices compared to cable broadband services, the US mobile operators should be able to double their ARPU from mobile customers with the new services. Not surprising then that they are racing the world to be the first to launch 5G.

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